Busting the K-12 Monopoly

12 Monday Dec 2016

Posted by Nuetzel in Education, School Choice

Tags

Betsy DeVos, Cafe Hayek, Don Boudreaux, Donald Trump, Education Funding, GI Bill, Opportunity cost, Public School Monopoly, Racial Segregation, School Choice, School Vouchers, Teachers Unions

Public school teachers are highly sensitive to any suggestion that their schools should “compete” for students, but it’s difficult to rationalize restrictions on competition faced by any institution that trades with consumers. Education is certainly not a natural monopoly. But in the U.S., K-12 public schools are granted an effective service monopoly over large segments of their local markets. Their monopoly status is a legacy and usually taken for granted, but that does not make the arrangement a natural state of affairs, or a healthy one.

The idea that education is a “public good”, or nonexclusive in the benefits it confers, is true only in a weak sense. Yes, there are external benefits from the education of children, but those are secondary to the personal benefits reaped by the children themselves as they go through life. And even strong public spillover benefits do not imply that government should provision the education itself, free of competition. Economic theory justifying intervention in markets implies only that the public sector should attempt to augment supply; direct production by the public sector is unnecessary and often unwise. Competition among schools will bring forth more of the private and public benefits than a monopoly.

But the public schools are free, and that doesn’t sound like a monopoly, right? Well, no, they aren’t free! Not to taxpayers, of course, but also, not to families with children who are denied the right to fully internalize the true opportunity cost of the resources claimed by public schools. The option to move to a school district with better academic performance is unavailable to many families. What would those families decide given a greater degree of empowerment to consider alternatives?

About 18 months ago, the topic of the K-12 monopoly was the subject of a favorite post on Sacred Cow Chips called: “Public Monopolists Say “Don’t Be Choosy“. It called attention to a thought exercise featured by economist Don Boudreaux on Cafe Hayek. Consumers are very choosy about their food, and they should be. Why shouldn’t they be just as choosy about another essential: the school for their children? Because the government won’t let them! Boudreaux lists factors that would make consumer grocery distribution just like the structure of K-12 education. That includes property taxes to pay for “public” grocery stores and the allotments of food they distribute, assignment of each family to a single public grocery store, but freedom to shop at “private” grocery stores at additional expense. He then asks how the food distribution system would perform. Here’s Boudreaux:

“Being largely protected from consumer choice, almost all public supermarkets would be worse than private ones. In poor counties the quality of public supermarkets would be downright abysmal. ….

Responding to these failures, thoughtful souls would call for ‘supermarket choice’ fueled by vouchers or tax credits. Those calls would be vigorously opposed by public-supermarket administrators and workers.

Opponents of supermarket choice would accuse its proponents of demonizing supermarket workers (who, after all, have no control over their customers’ poor eating habits at home). Advocates of choice would also be accused of trying to deny ordinary families the food needed for survival. Such choice, it would be alleged, would drain precious resources from public supermarkets whose poor performance testifies to their overwhelming need for more public funds.

As for the handful of radicals who call for total separation of supermarket and state—well, they would be criticized by almost everyone as antisocial devils indifferent to the starvation that would haunt the land if the provision of groceries were governed exclusively by private market forces.

In the face of calls for supermarket choice, supermarket-workers unions would use their significant resources for lobbying—in favor of public-supermarkets’ monopoly power and against any suggestion that market forces are appropriate for delivering something as essential as groceries.“

That’s exactly the behavior we see from the teacher’s unions, from which sanctimony flows liberally as to “public service”. Remember that the classic monopolist actively engages in denying choice and restraining trade through private actions, public relations and various other political means. But why would any sane observer have concluded that these “protected markets” would lead to successful outcomes?

It’s no secret that public schools in the U.S. face severe challenges. They are highly uneven in their results. A recent report in U.S. News said the following:

“Since World War II, inflation-adjusted spending per student in American public schools has increased by 663 percent. Where did all of that money go? One place it went was to hire more personnel. Between 1950 and 2009, American public schools experienced a 96 percent increase in student population. During that time, public schools increased their staff by 386 percent – four times the increase in students. The number of teachers increased by 252 percent, over 2.5 times the increase in students. The number of administrators and other staff increased by over seven times the increase in students.“

Federal efforts to improve K-12 education have been remarkably fruitless. Despite the massive increases in staffing over the past 50 years at all levels, graduation rates are still miserable in minority districts; schools are more segregated today than 50 years ago; huge gaps exist between the achievement of students in high and low-income districts; and math scores on standardized tests rank near the bottom of OECD countries, (science and reading scores are closer to the average).

The usual rejoinder from the public school establishment is that still greater funding is needed. Always more…. But families are exercising their right to opt-out. The number of home-schooled children is likely to exceed two million by 2020. There are now programs in 32 states facilitating choice through vouchers, tax credits, tax deductions, and education savings accounts. The body of research surrounding the effects of school choice is overwhelmingly positive: choice has improved academic outcomes in both private schools and the public schools that are forced to compete, it has a positive fiscal impact, and it reduces racial segregation. The constant drumbeat of additional funding requests looks unnecessary and wasteful in view of the options.

As for federal dollars, one suggestion is to pare back sharply the number of bureaucrats at the education department, putting the savings toward a program that would emulate the hugely successful GI Bill, under which beneficiaries chose how to spend the money.

Donald Trump’s nominee for education secretary is school choice advocate Betsy DeVos. Obviously, the new administration will not view the public school monopoly as untouchable. But let’s get one thing straight: no one is trying to “ruin” public schools. The objective is to fix something that’s been broken for a long time and, in so doing, to improve educational outcomes across all segments of society. The medicine delivered thus far, including top-down planning and profligate spending, has been expensive and ineffective, and even counterproductive in some respects. A few bad schools will fail under a competitive regime, but they already do. Bad schools have no sacred right to survive. Most struggling schools will improve, leveraging innovative techniques as well as their natural advantages, which often include proximity to a base of prospective students. It’s time to tackle the education problem by vesting consumers with sovereignty in the choice of schools.

Francis Pontiff-icates In His Fallible Zone

24 Thursday Sep 2015

Posted by Nuetzel in Capitalism, Global Warming, Poverty, Socialism

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Anti-Capitalism, Bono and Capitalism, Cafe Hayek, Don Boudreaux, economic growth, Karl Marx, Matters of Faith, Opiate of the Masses, Papal infallibility, Pope Francis, Raul Castro, Reason.com, Stephanie Slade, World Poverty

Pope Francis dispenses guidance in matters of faith from his heart. In matters of economics and science, his guidance doesn’t come from a well-informed mind. I’ve devoted two posts to Francis’ political follies this year: “Green Hubris: The Flub of Rome“, and “Francis’ Statist Vision Not Shared By Venezuelan Clergy“. While foreswearing ideology in the pulpit, he nevertheless promotes leftist economic ideology and denigrates capitalism, the single-best form of social organization for lifting mankind from privation. He ignores mountains of evidence demonstrating that his hopes for humanity are best served by free markets and liberty. Francis further confuses the issue of church teachings versus personal ideology by claiming that his views are longstanding views of the Church.

A dark theory of the Pope’s anti-capitalist rhetoric occurred to me. It has to do with an ecclesiastical variant on statism: just as statist elites like President Obama seem to prefer widespread dependence on the state, so too does the Pope wish for widespread dependence on the Church for spiritual nourishment. Karl Marx is often quoted as having said “Religion is the opiate of the masses.” However, the full quote is the following:

“Religion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people.“

Perhaps the Pope understands this all too well. An impoverished world may well be a more pious world, and his condemnation of capitalism might help to lead us there. Is such an ulterior motive too Machiavellian to describe the kind-hearted pontiff? Probably. Perhaps the Devil made me think of it!

Like most on the Left, the Pope does the world’s poor no favor by way of blindly accepting the global warmist agenda, which is based on a hypothesis “proven” only in the sense that a certain class of climate models predict a directional outcome. Those models have accumulated a long track record of bad forecasts. Not only that: the surface temperature records reported by U.S. Government agencies and the media as “evidence” of global warming are not supported by satellite records, and trends have been heavily manipulated via downward adjustments to past temperatures. But even if we stipulate that the carbon-forcing models and the surface temperature records are correct, there are major questions regarding the severity of the outcome and whether it poses a two-sided risk to human welfare. Mediation of this hypothetical risk is extremely costly, requiring diversion of vast quantities of resources, and that takes a real human toll. This is why the policy prescriptions of the warmist community lack internal consistency. For example, they wish to restrict power production from fossil fuels in the developing world, forcing populations to deforest and rely on unhealthy wood burning — indoors! — to meet basic needs like heating and cooking.

Here is the full text of a letter from Don Boudreaux to the Washington Post:

“On the opening page of your website today you ask readers to register their agreement or disagreement with this statement of Pope Francis: ‘This is our sin: Exploiting the Earth and not allowing her to give us what she has within her.’

This claim is laughable. History testifies unmistakably that the earth is extremely stingy in volunteering to humans ‘what she has within her.’ Indeed, what the earth has within her are mere raw materials, by themselves useless unless and until human creativity discovers not only how to transform them into actual resources and outputs that improve human well-being (Ever try fueling your jet with crude oil?) but also how to ‘exploit’ the earth so that she releases her materials to us at a reasonable cost.

The Pope is vocal about helping the world’s poor. I believe that he’s sincere. So I sincerely hope that he comes to realize that the greatest sin of all against humanity would be the suppression of those capitalist institutions that have proven to be the only practical means of transforming what the earth has within her into a bounty of goods and services that allows the masses, for the first time in history, to live lives of material abundance and dignity upon her.“

A few of the comments that follow Boudreaux’s post on Cafe Hayek are good, too.

Stephanie Slade has an excellent piece in Reason entitled “If Pope Francis Wants to Help the Poor, He Should Embrace Capitalism“. Here are some samples addressing the power of markets and capitalism to improve human welfare and eradicate poverty:

“Pope Francis thinks free marketeers have been deluded by a ‘myth of unlimited material progress.’ If we have, it’s because we’ve seen for ourselves the wonders that economic development and technological advancement can bring—from modern medicine stopping diseases that were the scourge of civilizations for centuries, to buildings more able to withstand natural disasters than at any time before, to ever-widening access to the air conditioning he wishes us to use less of.“

“‘Entrepreneurial capitalism takes more people out of poverty than aid.’ With those 10 words, spoken to an audience at Georgetown University in 2013, philanthropist rock star Bono demonstrated a keener understanding of economic reality than the leader of global Catholicism.

The U2 frontman clearly has it right—and Pope Francis is wrong to suggest that poverty is growing, or that capitalism, free markets, and globalization are fueling the (non-existent) problem. In just two decades, extreme poverty has been reduced by more than 50 percent. ‘In 1990, almost half of the population in developing regions lived on less than $1.25 a day,’ reads a 2014 report from the United Nations. ‘This rate dropped to 22 per cent by 2010, reducing the number of people living in extreme poverty by 700 million.’

How was this secular miracle achieved? The bulk of the answer is through economic development, as nascent markets began to take hold in large swaths of the world that were until recently desperately poor. A 2013 editorial from The Economist noted that… ‘Most of the credit… must go to capitalism and free trade, for they enable economies to grow—and it was growth, principally, that has eased destitution.’“

As Slade explains, far from a scourge on the environment, capitalism is and has been a great blessing:

“Both the economics and the history are clear: The more prosperous the developing world becomes, the more it too will be able to demand and achieve livable conditions. If your goal is to move the world to concern for the preservation of biodiversity, the answer is economic growth. If you want to increase access to clean water, the solution is to increase global wealth, and the consumer power that comes with it. Studies have shown that deforestation reverses when a country’s annual GDP reaches about $3,000 per capita. While some environmental indicators do get worse during the early stages of industrialization, the widely accepted Environmental Kuznets Curve hypothesis convincingly argues that they quickly reverse themselves when national income grows beyond a certain threshold. If the pope wants a cleaner world, the best way to get there is by creating a richer world—something Pope Francis’ own policy recommendations will make more difficult.“

A theme in Slade’s essay is that Francis is simply confused. On one level, he seems to know that technological advance is of great benefit to mankind, yet he is extremely wary of economic growth and believes that less production and consumption is better. That would make the job of alleviating conditions for the world’s poor much more challenging, if not impossible! He acknowledges that the environment has improved drastically in some parts of the world, but he seems unaware that the same areas are the most economically developed, and have the most well-developed markets. Like most on the Left, he also seems confused about the real meaning of capitalism. And the Pope “often blurs the line between public and private action.”

Slade concludes with some messages for Catholics. First, the Pope’s opinions on matters of faith are said to be infallible, according to Catholic doctrine. But opinions on topics like capitalism and the environment are outside his sphere of infallibility. Second, Slade is rightly offended by the Pope’s attitude that libertarianism and a belief in the efficacy of free markets is not compatible with Christianity.

Thus far during the Pope’s visit to Cuba and the U.S., he has thrilled the murderous Castro brothers and spoken out in favor of Obama’s climate agenda. Raul Castro is so happy about the Pope’s opinions on capitalism “that he might ‘start praying again’ and rejoin the church“. I truly hope that members of the Catholic flock, or any others, don’t take the Pope’s political exhortations too seriously.

Public Monopolists Say “Don’t Be Choosy”

12 Sunday Jul 2015

Posted by Nuetzel in Markets, School Choice

≈ 3 Comments

Tags

Cafe Hayek, Don Boudreaux, K-12 education, monopoly, Politicized interests, Private education, Public education, Redistribution, Restraint of Trade, School Choice

Imagine a food distribution system that mirrored the organization of K-12 education in the U.S. How do you think it would work out? That thought exercise was conducted four years ago by Don Boudreaux in his Wall Street Journal op-ed: “If Supermarkets Were Like Public Schools”(gated). Boudreaux has helpfully reblogged this op-ed at Cafe Hayek as part of his post “Separate School From State“. Read the whole thing! Because this is a topic in economics and I am so very pedantic, I prefer not to use the term “market” at all in this context. After all, a public “supermarket”, as discussed by Boudreaux, is no more a market than a public school is a market. I will use the term “public grocery store” instead, except when quoting Boudreaux.

The comparison of grocery stores to schools involves outputs that are both considered essential. In fact, there should be no argument that food is the more essential of the two. Yet the essential nature of educating children in a modern society is thought to be an important rationale for the existence of a public school system. Would supporters of public education care to apply the argument that “market forces can’t supply quality education” to another essential product, like food?

Boudreaux invokes several features of K-12 education in “designing” his hypothetical food distribution system:

“Residents of each county would pay taxes on their properties.“
“Each family would be assigned to a particular supermarket according to its home address. And each family would get its weekly allotment of groceries—’for free’—from its neighborhood public supermarket.“
“No family would be permitted to get groceries from a public supermarket outside of its district.“
“... families would be free to shop at private supermarkets that charge directly for the groceries they offer. Private-supermarket families, however, would receive no reductions in their property taxes.“

Economic theory predicts that the monopoly status held by public grocery stores over the provision of “free food” within their districts would cause the quality and variety offered at those stores to suffer. This is just a form of restraining trade, which is what monopolists do. The classic monopolist charges a higher price and produces less output. Exactly the same is predicted in Boudreaux’s experiment.

One difference in comparing food stores to schools is that families, presumably, could purchase some of their groceries from private stores and meet the rest of their food needs from their district grocery store at no marginal cost, whereas the school selection is all public or all private. However, this does not invalidate Boudreaux’s assertion that the quality offered by the monopoly provider will suffer.

Like public schools, there would be massive variations in quality across public grocery stores due to variation in the tax base from one district to another. This would tend to reinforce differences in the value of property across districts, because it is so desirable to live in a district with a good public grocery.

Here’s an extended excerpt from Boudreaux:

That sounds all too familiar. Even with massive state redistribution of public grocery store funding from wealthy to poor districts, the result would be much the same, as it is with public schools. Increased grocery store funding cannot correct the larger problems plaguing the community, many of which are created by the welfare state itself. And increased funding does not correct fundamental dislocations created by a monopoly, especially a public monopoly. The entrenched, politicized interests that infest public institutions always resist changes that might improve quality. They are typified by bloated administrative machinery and a general lack of responsiveness to the community. Only competition and choice can eliminate these tendencies and drive improvement.

An objection that might be raised to Boudreaux’s comparison is that public schools must accommodate a student population with wide variations in learning ability. It may be claimed that this variation strains the resources of public relative to private schools. However, that burden is due in large part to the structure of the education system. A benefit of competition and choice is the extent to which it can accommodate diverse needs, and there is no reason why education should prove to be an exception. In fact, diverse needs are already met very well by private education, but they serve only “private school families.” Empowering all families to choose the schools that best accommodate their needs would bring higher quality to our K-12 education system.

Distorting Trends in Inequality

30 Tuesday Sep 2014

Posted by Nuetzel in Uncategorized

≈ 3 Comments

Tags

Cafe Hayek, Distribution of income, economic growth, Inequality, John Cochrane, Moneyball, Phil Birnbaum

Simple mathematics shows that commonly cited statistics on income inequality are often highly misleading. Phil Birnbaum is a “sabermetrician,” or baseball statistician (a la Moneyball), with a nice post on this topic (hat tip: Cafe Hayek). He picks on a Federal Reserve report on the U.S. distribution of income, pointing out a flawed interpretation of these statistics that is all too common. In particular, the Fed economists discuss shares of income flowing to various quantiles of the population as if the individuals within each quantile never change. There is a tendency to think of changes in other widely-used statistics on income distribution in the same way (e.g., Gini coefficients).

Birnbaum also mentions an interpretation of the Fed report by a New York Times writer that was even more egregious. For emphasis, Birnbaum changes the context from income quantiles to lottery winnings:

“‘Lottery winners picked up 10 percent higher jackpots in 2013 than 2010, keeping winnings disproportionately in the hands of those who already won so much.’ That would be an absurd thing to say for someone who realizes that the jackpot winners of 2013 are not necessarily the same people as the jackpot winners of 2010.”

As Birnbaum notes, the use of income shares by fixed quantile is largely a matter of data availability, as our ability to track individual households as they move through the income distribution is limited. However, tracking individual households would often lead to different conclusions about changing income shares over time. For example, the traditional approach (used by the Fed) is to act as if the top 1% by income is the same group before and after the period of analysis. In fact, if the income share flowing to the identical set of households were measured after the fact, it would look far different; it would be lower than the share quoted by the Fed report because people can migrate from the top 1% in only one direction: down. Similarly, the lowest quantile (1%, or whatever percent) either stay put or migrate upward in the distribution, so the ex-post income share of the same households would be higher than reported by the Fed.

Birnbaum provides simple numerical examples demonstrating the different implications of changes in income shares of fixed quantiles versus fixed sets of households. (His last example is flawed, as discussed in the comments.) He also demonstrates that the simple process of economic growth with broadly distributed benefits almost always leads to greater inequality based on fixed quantiles, but not based on fixed household groups. Here is a wonderful quote:

“It makes no sense at all to regret a sequence of events on the grounds that, in retrospect, it helped the people with better outcomes more than it helped the people with worse outcomes. Because, that’s EVERY sequence of events!”

As noted by John Cochrane in a recent address, inequality is often not so much a problem as it is a symptom of other issues. One of those issues can be economic growth. Inequality, in and of itself, is fairly meaningless as a guide to economic policy. If only the pundits treated it as such.

Unicorns, The State and Sustainability

15 Friday Aug 2014

Posted by Nuetzel in Uncategorized

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Cafe Hayek, Don Boudreaux, Government Failure, Markets, Matt Ridley, Michael Munger, Platitudes, Sustainablility, Unicorns

Every time someone says “the government should …,” ask them to replace the “G word” with “politicians I actually know, running in electoral systems with voters and interest groups that actually exist.” Does the speaker still think “the government should?” It’s a good test suggested by Michael Munger in his article “Unicorn Governance.” His point is that nearly all calls for state intervention really profess a kind of belief in unicorns. So let’s remove the unicorn from the argument. He says:

My friends generally dislike politicians, find democracy messy and distasteful, and object to the brutality and coercive excesses of foreign wars, the war on drugs, and the spying of the NSA.

But their solution is, without exception, to expand the power of “the State.” That seems literally insane to me—a non sequitur of such monstrous proportions that I had trouble taking it seriously.

Along the same lines, Don Boudreaux at Cafe Hayek offers a quote from Matt Ridley’s book, The Rational Optimist:

Economists are quick to speak of ‘market failure’, and rightly so, but a greater threat comes from ‘government failure‘. Because it is a monopoly, government brings inefficiency and stagnation to most things it runs; government agencies pursue the inflation of their budgets rather than the service of their customers; pressure groups form an unholy alliance with agencies to extract more money from taxpayers for their members. Yet despite all this, most clever people still call for government to run more things and assume that if it did so, it would somehow be more perfect, more selfless, next time.

Finally, Boudreaux has a recent piece in which he proposes a little Platitude Test. Is the speaker offering up a platitude? Well, “ask yourself if you can imagine a normal human adult believing the opposite.” If so, then there is truly something of substance at issue. Boudreaux notes that this is usually not the case when the word “sustainability” is trotted out:

p style=”padding-left:30px;”>You’ll discover, of course, that you can’t imagine anyone seriously supporting ‘unsustainability.’ Therefore, you should conclude that mere expressions of support for ‘sustainability’ are empty. And they can be downright harmful if they mislead people into supporting counterproductive government policies. Substantive issues involving sustainability invoke questions that have non-obvious answers. For example: At what rate must the supply of a resource fall before we conclude that continued use of that resource is unsustainable?

Ultimately, market mechanisms are fabulous guardians of real sustainability, since they price scarce resources so as to allocate them efficiently across time and space, providing incentives for conservation, to bring forth new supplies of the resource, and to develop rational substitutes. Unicorns and the state don’t do nearly as well.

NOTE: I apologize for the haphazard formatting in this post. I cannot seem to get the editor to cooperate tonight. I had similar problems last night but resolved them, though not in a fully satisfactory way. Tonight the issues seem worse.